Ecolab Agrees to Buy Champion for $2.2 Billion

Ecolab will pay approximately $1.7 billion in cash and issue about 8 million shares of common stock, the St. Paul, Minnesota-based company said today in a statement. Photographer: Tim Boyle/Bloomberg

Oct. 12 (Bloomberg) -- Ecolab Inc., the largest provider of
chemicals and services for water and wastewater treatment,
agreed to buy Champion Technologies Inc. for about $2.2 billion
in cash and stock, in a bid to become the largest oil-field
chemicals supplier in North America.

Ecolab will pay approximately $1.7 billion in cash and
issue about 8 million shares of common stock, the St. Paul,
Minnesota-based company said today in a statement. The
acquisition of closely held Champion should close by year end
and add to earnings starting in 2013, Ecolab said.

Shale production, which uses water, sand and chemicals to
free oil and natural gas from rock formations, has quadrupled in
the U.S. during the past four years. This is the second purchase
by Ecolab of a company that makes energy-related chemicals. The
company last year paid $5.4 billion for Nalco Holding Co.

Together, the deals will make Ecolab the largest producer
of North American oilfield chemicals, with about a 40 percent
market share, according to Mike Ritzenthaler, a research analyst
at Piper Jaffray Cos. in Minneapolis.

Ecolab rose 4 percent to $66.24 at the close in New York,
the biggest increase since August 2011.

Champion’s Competitors

Chairman and Chief Executive Officer Douglas Baker Jr. said
he’s expanding his newly created energy services unit by 60
percent with the addition of Houston-based Champion. The
purchase shifts the unit’s focus to North America, where
unconventional drilling methods are boosting demand for the
chemicals Champion produces, such as solvents and rust
inhibitors that boost petroleum output.

Champion competes against some of the largest oilfield-services companies, including Schlumberger Ltd., Halliburton Co.
and Baker Hughes Inc., making chemicals that are pumped
underground to aid production.

Champion has about 3,300 employees in 30 countries
generating an estimated $1.4 billion of sales this year, with
about 70 percent in North America, Ecolab said. Sales have risen
about 13 percent a year since 2009, compared with 11 percent in
Ecolab’s energy services unit.

Energy Segment

The company is controlled by the descendants of the late
Willard M. Johnson, who first bought a stake in Champion in
1959. The opportunity for Ecolab to buy Champion came soon after
the larger chemical company bought Nalco, and others also
considered buying the business, Baker said on a conference call
today. The three families who own Champion were motivated to
sell by personal and tax reasons, Steve Taylor, president of
Ecolab’s energy services unit, said the call.

Ecolab bought Nalco in December to gain chemicals used in
water treatment and energy. Energy services is Ecolab’s fastest-growing segment and will comprise 25 percent of sales with the
addition of Champion, up from 19 percent in the second quarter,
Ecolab said. The cleaning and sanitizing unit, which supplies
chemicals to food processors, restaurants and hotels, will
remain the largest.

Ecolab is paying 11.4 times estimated 2012 earnings before
interest, taxes, depreciation and amortization, Chief Financial
Officer Daniel Schmechel said on the call. The multiple is 9.1
times Ebitda after $50 million in first-year cost savings are
achieved and 6.4 times after $150 million in savings, he said.
The average chemical transaction this year was for 7.2 times
Ebitda, according to data compiled by Bloomberg.

Repurchase Plan

The transaction includes assumption of Champion’s $37
million in net debt. Ecolab plans to finance the deal with a
$900 million term loan and $750 million in senior notes,
Schmechel said. Ecolab next year will buy back the remaining
$280 million of shares in a $1 billion repurchase authorization,
he said.

Profit in the third-quarter was about 87 cents a share,
Ecolab said in the statement. That tops the 86-cent average
estimate of 15 analysts surveyed by Bloomberg.

Champion was advised by Tudor, Pickering, Holt & Co. and
Lazard Ltd., the company said on its website. Bank of America
Corp. advised Ecolab.